Have equity in your home? Want a lower payment? An appraisal from Peak Appreasing can help you get rid of your PMI.It's largely understood that a 20% down payment is accepted when buying a house. The lender's only exposure is typically just the remainder between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and typical value variations in the event a borrower defaults.
During the recent mortgage boom that our country recently experienced, it became widespread to see lenders reducing down payments to 10, 5, 3 or often 0 percent. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional policy protects the lender in case a borrower doesn't pay on the loan and the value of the property is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI can be pricey to a borrower. It's lucrative for the lender because they obtain the money, and they receive payment if the borrower is unable to pay, as opposed to a piggyback loan where the lender consumes all the losses.
How can a home owner avoid bearing the expense of PMI?The Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, smart home owners can get off the hook ahead of time.
Because it can take many years to arrive at the point where the principal is just 80% of the initial amount of the loan, it's necessary to know how your North Carolina home has grown in value. After all, any appreciation you've acquired over time counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not conform to national trends and/or your home could have secured equity before the economy declined. So even when nationwide trends indicate declining home values, you should understand that real estate is local.
A certified, North Carolina licensed real estate appraiser can help home owners figure out if their equity has reached the 20% point, as it's a difficult thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Peak Appreasing, we're masters at identifying value trends in Apex, Wake County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often cancel the PMI with little trouble. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: